Secret Liens: Can They Really Have Super-Priority Status?
In the restructuring world certain constants exist: The Bankruptcy Code (Code) has not dramatically changed since 1978, a Chapter 7 corporate debtor cannot receive a discharge, and exemptions are defined to the penny. But be wary -- there are unknown pitfalls out there. State governments, to appear responsive to local issues caused by distressed businesses, have increasingly enacted laws that spring "secret liens" or other penalties on debtors. Although bankruptcy practitioners may instinctively deride such laws as subordinate to the federal Code, recent federal opinions disagree.
What Are the Odds?
28 U.S.C. ' 157(d) contains the standards for mandatory or permissive withdrawal of the reference from the Bankruptcy Court to the District Court, which…
Concerns About Outsourcing
A popular managerial concept for over two decades, outsourcing now holds even greater appeal as large numbers of lesser-paid, skilled workers become accessible through improved telecommunications and workflow management techniques. As convincingly depicted in Lisa R. Smith's accompanying article, the direct cost advantages of outsourcing are stronger than ever, and at least some outsourcers are providing high quality service even for security-sensitive functions previously kept in-house. During the current jobless recovery, however, outsourcing is rapidly turning into a political hot button. Its globalized variants, "job exporting" and "offshoring," are already red hot. Although some political discussants appear self-interested and even demagogic, it's clear that widespread outsourcing is indeed associated with serious societal problems ' and probably not just in the short term.
Outsourcing: The Next Generation
Outsourcing is top of the news in many industries, and the legal industry is no exception. Recent news reports and editorials comment exhaustively on many aspects of outsourcing, and for any of those aspects you can find someone who will opine convincingly at either end of the spectrum. Many large firms have taken the step of locating a portion of their back office outside a principal office, including, as was described in the January interview with Ralph Baxter, Orrick's Global Operations Center in West Virginia. These arrangements, while generally a great move for the firms, should not be confused with outsourcing because the services are still being provided within the firm. However, they may certainly be a viable alternative to outsourcing.
Beyond Chapter 11: Entity Coverage for Directors and Officers
More than 90% of public companies purchase "entity coverage" as part of their directors' and officers' (D&O) insurance policies. Entity coverage protects the company itself — as opposed to its directors and officers — against securities claims. During the last 2 years, however, it would have been difficult for the director of any public company to avoid hearing that entity coverage creates an undue risk of depriving the director of D&O coverage if the company for which he or she serves files for bankruptcy. One major D&O insurer distributed a paper containing this gratuitous advice to the directors of every public company in the country. Many legal seminars and D&O coverage proposals prepared by brokers also warn of this danger. Not surprisingly, CEOs and general counsel often are questioned by their boards about D&O coverage in the event of bankruptcy.
The Final Pieces of the Trigger and Allocation Puzzle in New York
With the flurry of major insurance decisions pertaining to long-tail tort claims in the early 1990s, practitioners appear to take New York law largely for granted when assessing trigger and allocation issues. True enough, the basics are now "well settled": an "injury in fact" trigger (<i>American Home Products Corp. v. Liberty Mut. Ins. Co.</i>, 748 F.2d 760 (2nd Cir. 1984) ("<i>AHP</i>")); an emphatic rejection of the so-called "all sums" approach to allocation (<i>Consolidated Edison Co. v. Allstate Ins. Co.</i>, 746 N.Y.S.2d 622 (N.Y. 2002)); and adoption of a <i>pro rata</i> methodology, (<i>Stonewall Insurance Company v. Asbestos Claims Management Corporation</i> 73 F.3d 1178, 1192 n.5 (2nd Cir. 1995) (citing <i>Owens-Illinois v. United Ins. Co.</i>, 138 N.J. 437 (N.J. 1994)); <i>Con Ed</i>, 746 N.Y.S.2d 622). All that said, we expect to see highly significant elaborations or refinements of the real world meaning of "injury in fact," and these open issues may have consequences for a wide range of major claims.
We Didn't Really Mean 'Intentional': Structural Ambiguity Created by 'Personal Injury' Coverage
The purpose of insurance is to insure. In attempting to see that this purpose is achieved, courts have developed the following rules of construction that are beyond dispute. First, grants of coverage are broadly construed. <i>See, e.g., Federal Home Loan Mtg. Corp. v. Scottsdale Ins. Co.</i>, 316 F.3d 431, 444 (3d Cir. 2003); <i>Community Found. for Jewish Educ. v. Federal Ins. Co.</i>, 16 Fed. Appx. 462, 465 (7th Cir. 2001); <i>Blum v. Allstate Ins. Co.</i>, No. 4:03CV401 CDP, 2003 WL 23009136, at *2 (E.D. Mo. Dec. 15, 2003). Second, exclusions to coverage are strictly construed. <i>See, e.g., Auto-Owners Ins. Co. v. Churchman</i>, 489 N.W.2d 431 (Mich. 1992); <i>Napoli, Kaiser & Bern, LLP v. Westport Ins. Co.</i>, No. 02 Civ. 7931 (JGK), 2003 WL 22952171, at *7 (S.D.N.Y. Dec. 15, 2003); <i>Dursham v. Nationwide Ins. Co.</i>, 92 F. Supp.2d 353 (D. Vt. 2000). Third, if there is any doubt as to whether coverage exists, such doubts should be resolved in favor of the existence of coverage. <i>See, e.g., American Bumper & Mfg. Co. v. Hartford Fire Ins. Co.</i>, 550 N.W.2d 475, 481 (Mich. 1996); <i>Hecla Mining Co. v. New Hampshire Ins. Co.</i>, 811 P.2d 1083, 1090 (Colo. 1991). All of these doctrines, while generally recognized, result in endless disputes between the insurance purchasers (policyholders) and insurance sellers (insurance companies) on a daily basis when the specific facts of a claim develop. But one recurring scenario is not addressed by these broad maxims of insurance law: What should a court do with the insurance contract that is, by its very nature, internally structured so that there is an inherent conflict that renders a determination of available coverage ambiguous before a claim is even presented?
Case Briefs
Highlight of the latest insurance cases from around the country.
